The Greek Referendum: A Machiavellian Scenario
by Srdja Trifkovic • November 1st, 2011 • Related • Filed Under
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European politicians and commentators are predictably screaming blue murder over Prime Minister George Papandreou’s announcement that the Greek government will put the EU rescue package to a referendum, but I smell a rat. This looks like a cunning ploy, jointly engineered by Athens and Berlin, to get a more radical “haircut” than the 50 percent announced last Thursday in Brussels … with the French banks footing most of the bill. In this scenario the referendum could be called off (or else the Greek voters induced to say “yes” to the improved deal), and Germany would end up increasing her overall financial and political clout.

On the domestic front Papandreou’s gamble makes sense. “Papandreou’s call for a referendum was a last resort,” according to The New York Times “meant to gain broader political support for the unpopular austerity measures… without forcing early elections.” In fact it is more than that. The center-right opposition has withheld support from the austerity plan forced upon Papandreou by Brussels, but it has no alternative strategy of its own. He does not want to be the sole villain of the piece, and the debate preceding the referendum would force his opponents to declare what would they do differently. Judging by the change of government in Lisbon earlier this year, after the Portuguese government lost the austerity vote, the answer is—nothing much. Papandreou does not want a repeat performance in Athens, and his decision presents the New_Democracy with a dilemma. As The Economist blog points out, “The hope is that the opposition, recognising that there is little choice but to implement agreed upon policies and understanding that the public is likely to reject the deal, will be forced to support the government’s austerity measures, thereby making the referendum unnecessary.”

On the more important foreign front, prima facie, it is those wily, Levantine Greeks—at their worst again—wrongfooting “Europe.” To make matters worse, they are doing so a mere three days before the G20 summit, which was supposed to garner foreign support (read: Chinese, possibly Japanese) for resolving the Eurozone debt crisis. For as long as the Greek outcome remains uncertain, no foreign government is going to give Europe the money for the enhanced bailout fund.

“The referendum … is probably the final bell before Greece defaults and quits the euro,” The Guardian was quick to conclude. “The repercussions would be incalculable, for Greece but also for Europe.” The announcement came “out of the blue, it’s surprising, very risky,” says Norbert Barthle, the ranking member of Chancellor Angela Merkel’s Christian Democratic Union. French President Nicolas Sarkozy is “dismayed” by the Greek plan, according to Le Monde.

While the French have every reason to be unpleasantly surprised, the Germans may protest too much. Were they really surprised? Call me paranoid, but on the basis of platitudinous official statements, we still cannot decipher what was on the agenda five weeks ago during the visit to Berlin by Papandreou and his finance minister Evangelos Venizelos. Had it been to simply reassure the markets that they were willing to accept a comprehensive solution to the debt crisis, they could have issued a couple of press releases from their Athens cabinets. On the other hand, working out a subtle, mutually beneficial scenario with Frau Merkel would have required a discrete tete-ŕ-tete encounter.

Let us speculate. On current form there is no doubt that the Greeks would vote “no” in the referendum—possibly by a two-thirds majority. As the date of the vote draws near (probably in late December or early January), the bankers—mainly French bankers holding Greek bonds, that is—will start sweating. Suddenly even the 50 percent “haircut” agreed on October 26 would look good in comparison to Greece’s sovereign default—the nightmare scenario that would follow a “no” vote like night follows day. A last-minute suggestion from Berlin to raise the “haircut” to 65 or 70 percent would still seem preferable to the prospect of getting nothing at all.

I’d say it is an even bet that the Parisians would go for it, thus further reducing Greece’s debt burden at no cost to the German exchequer and at bearable cost to the modestly exposed German banks. Sarkozy would have no choice but to recapitalize Societe Generale and others, thus jeopardizing France’s credit rating and making himself ever more vulnerable to various future diktats from across the Rhine. Papandreou calls the referendum off or else presents himself as a heroic David getting the best deal possible, hence winning the vote.

The writing is already on the wall. French banks exposed to Greek bonds slumped within hours of the referendum: Societe Generale tumbled 13 percent and BNP Paribas and Credit Agricole fell more than 10 percent. By noon Tuesday, the European bank index was down over six percent, wiping out the gains that followed the announcement of the EU rescue deal on October 26. European stocks sank to their lowest level in five weeks. (Washington may have been as surprised by Papandreou’s announcement as Paris, but has no reason to complain: Treasuries rose on the news from Athens, extending the biggest rally in 30-year bonds since March 2009.)

We could not predict the referendum, but the weakness of the rescue package has been evident all along. The euphoria just before the weekend was short-lived. Had I had a few million handy last Thursday and Friday I would have gambled on the put options, as the markets on both sides of the Atlantic swung up in response to the EU package. In reality it was not much of a “deal” to start with, and now it is in disarray.

Papandreou’s “bombshell” announcement appears to make little sense. His government is in jeopardy, his personal credibility with his EU colleagues is collapsing, and his chance of getting a “yes” vote is nil. And yet he is a shrewd politician, the heir to Greece’s foremost political dynasty. Why would he do it? There is more than meets the eye here. What we need to ask is Cui bono?

You can bet Djokovic's mom just screamed "Another king is dead" right about now - in the remotest corner - of her bathroom - followed by "The other one is buried." (from tennisplanet.me, following Madrid 2011 Djokovic d. Nadal 7-5 6-4)

The elite still can't face up to it: Europe's model has failedThese bailouts are for the banks, not Greece – and they're deepening the crisis of democracy at the heart of the EUSeumas Milne guardian.co.uk, Wednesday 2 November 2011

You might think that giving people a say in the most crucial decisions affecting their country would be second nature for a union of states that claims democracy as its most sacred founding principle. But George Papandreou's announcement that Greece would hold a referendum on the EU's latest shock therapy "rescue" plan was greeted with outrage across the chancelleries of Europe.

The Greek prime minister has now been summoned to the G20 summit in Cannes by Angela Merkel to be "read the riot act" over such reckless ingratitude. Last week's dose of new loans, 50% voluntary bank debt write-offs and yet more savage cuts and privatisations was supposed to have settled the matter and halted the threat of eurozone contagion – even if the deal's flakiness had already become painfully clear.

Papandreou's manoeuvre is, of course, a last-ditch attempt to save his political skin after months of mass street action over previous helpings of failed austerity that have driven Greek society to the brink. His government may fall and the referendum never be held, and even if it goes ahead Greeks will certainly be subjected to a barrage of threats and blackmail.

But the controversy goes to the heart of Europe's problem with democracy. It's not just fear of the risks of delay on febrile bond markets that has caused apoplexy, but the danger that Greeks might vote the wrong way. Voting is not how things are done in the EU. And whenever a state does actually consult its people – Denmark and Ireland had a go – they are made to vote again until they get it right.

But the democratic deficit has now tipped over into a democratic crisis. To protect the banks that lent to Greece and protected its elite from unwelcome tax demands, the country is being systematically stripped of its sovereignty, as EU and IMF officials swarm over its ministries drafting budgets, setting policy deadlines, "advising" on tax and pushing through state selloffs.

No wonder nationalist anger is growing. And all this to deliver a death spiral of spending cuts and tax increases that are sending Greece ever deeper into slump and debt. It makes no sense. Unless it's understood that it's not the Greek economy that's being rescued, but European and US banks exposed to Greek debt. To protect the rentiers and prevent their own failures from seizing up the European credit system, Greece has undergone the deepest ever fiscal squeeze in a developed state without the possibility of any compensating monetary stimulus or devaluation – because of its euro membership.

As a result its economy is collapsing and its debt is mushrooming. Papandreou's referendum proposal at least should raise the question of an alternative. Without a bailout of the Greek economy, any "orderly" default will be on the creditors' terms, and the country faces decades of stagnation. In those circumstances, an Argentina-style default and exit from the euro increasingly looks like the better option.

But Greece is only the extreme end of the eurozone crisis. Portugal and Spain, the other two EU members ruled by fascist dictators until the mid-70s, have also been reduced by stringent bailout conditions to the status of a protectorate run from Brussels, Frankfurt and Washington – with dire economic and social consequences.

Now the contagion threatens Italy, and Europe's crisis risks tipping the global economy back into recession. Last week's rescue package has already been recognised as a failure, EU leaders have resorted to lobbying China to back a wider bailout, and the International Labour Organisation is warning of a worldwide explosion of unemployment and social unrest.

But as in Britain, the eurozone's debt and stagnation crisis isn't about state profligacy. It's mainly the result of the recession-induced slump in tax revenues triggered by the 2008 crash feeding back into the banks that caused it. Private investment has collapsed, and until eurozone governments start bailing out the real economy, rather than the banks, with public investment for growth, the rescue packages will go on failing.

But that would require a radical shift in the politics of the core eurozone states, and there isn't the slightest sign of it. As a result, the eurozone faces potential breakup, and is highly unlikely to survive in its current form. It's not as if the dangers and flaws at the euro's heart weren't clear from the beginning, though, to critics on both left and right.

To tie together 17 countries with widely different levels of development and productivity around a single currency without large-scale tax and spend transfers, and underpin it with a rigidly deflationary central bank without full monetary powers, or any kind of credible democratic control, was always a disaster waiting to happen.

The aftershocks of the 2008 crash have now triggered that disaster. For the euro's architects, the currency was to be the catalyst for the deeper integration they always regarded as essential for European corporations to grow large enough to compete on a global scale. Now they see the eurozone crisis as a springboard to create the fiscal union and economic government they have long wanted, among a smaller group of countries.

But the loss of credibility created by the crisis goes beyond the eurozone to the economic ideology that has shaped the whole European Union for decades: of deregulation, privatisation and the privileging of corporate power, regardless of the modest employment rights introduced to limit social dumping.

That is exactly the model that is now in deep crisis across the western world. British Tory eurosceptics are, of course, all in favour of such an unaccountable free-for-all and only balk at the prospect of the pre-eminence of the City of London – whose role has skewed the British economy and deepened the impact of the crash – being undermined by EU meddling.

But, while Merkel last week raised the spectre of war if the eurozone goes down, none of the mainstream political parties across Europe is facing up to the failure of that model or the crisis of democracy it has sparked. It has been left to the archbishop of Canterbury and the Vatican to demand serious reform of the financial system. But everywhere the crisis is turning the orthodoxies of the past generation on their head – and it's going to be a different world by the time the debris has cleared.

Japan was the first country to reach a plateau of efficiency - maximal increase of efficiency in its own production and an optimal balance regarding what to import and from whom. Their economy couldn't grow significantly anymore, which equals a recession. They could possibly have gotten out of it temporarily by forcing people to work longer, but never did.

Since then, the oil production has peaked (at least temporarily), so keeping up growth gets increasingly harder for everyone, not just only Japan.

I think there are 3 ways on from now:

1) Massive increase in use of nuclear energy and drilling for oil in all possible places, even the presently prohibited ones.
2) Science finds a new energy source to tap from that outdoes oil and nuclear (I include 4th gen. nuclear in this category).
3) Massive downscaling of use of energy in the North coupled with slow economic growth in the South.

I think global economy will go down considerably quite soon, and it will probably be quick-fixed by 1. Number 2 can happen anytime, almost impossible to forecast; nonetheless, I think it is necessary for civilization to keep developing (3 could work in theory but sadly never in practice, it might require a new economic system).

If 1 carries on but 2 doesn't happen fast enough, it will lead to economic collapse if we empty the oil and nuclear sources fast enough, or ecological disaster if they suffice.

__________________

I don't like hypocrites, but even worse are the ones who think it's OK to be an asshole as long as you are not hypocritical.

Greeks are taking what they really deserve. The crisis is not only economic or politic. It's a national crisis and a moral crisis.
Such a beautiful country with great and simple people who disappointingly turned into a rubbish ban. Greece could be one of the richest countries in the world. Norway of South. But modern Greek people produce only problems and lies. Great shame starting from Ancient Greeks and finish to nowadays' arrogant people.

Well the U.S. hasn't recovered too well from 2008 so I'm sure all the mess in Europe will hurt us again. Everything is Global now so the effect from one country to another becomes like a game of dominoes

I want to goodrep you for all of your posts on this topic and your sound views. About the American interest, you are 100% right. But hey, why not? Europe has been destroying itself for centuries. Actually, 20th century wars in Europe, especially WW2 made the USA what it is, and rightfully so. and Europe in particular deserves to be squeezed to the maximum for the huge amount of shit & self-destruction we have produced since the French Revolution to this day, and the US (whatever it means) should reap the benefits, better them than anyone else in the world. That is one side of the story.

On the other hand, I understand people burdened with debts worldwide. They were enticed and hooked. But at the end of the day everything is still up to people, up to each individual. Bankers are doing their stuff, you just need to be smart enough to protect what you have, otherwise the smarter guy will leave you with empty pockets and you won't even notice it, and then what. Burn your own towns and yell down with the government? This is a very old story, old as a mankind. But then if many people took much money from the greedy bankers, and cannot pay them back...people can actually say fuck you, you're gonna get shit, and the sheer possibility of many people joined together saying that is something they are very afraid of, all of them together with the governments and we know whose interests they are likely to protect more.

I personally don't owe anything to any bank and I am proud of that. Just hate the concept. I do use credit cards but those with strict limits.
I will never be among the protesters, obviously I will stay somewhere in the middle, no man's land, and won't take sides except my own. When it comes to money you have to play the game they invented, short-term and long-term. Otherwise get a small farm and produce what you need yourself. Or burn down the government houses, I personally don't care as long as it does not disrupt the general security. When it comes to money everyone is on their own, this is the way it has been since forever and it wont be changed with any kind of ideology of philosophy, as long as there is money as such.

I made what turned out to be a good move when I converted some of my hard earned cash to gold back in 2008, but when you have a financial crisis, cash also becomes the king. So it's time to get some of my cash back but god only knows what to do where to put it now. Food industry seems ok.

As for Greeks their government was baaaad for years and they will have to pay now, this way or another. I would opt for default, getting out of eurozone, and a big fat fuck you to creditors, with slow and gradual recovery but this time on solid grounds.

Just my 2 cents, I know I am very simplistic about things, obviously I don't have the ambition to correct the ways of the world.

thanks man... appreciate your post... i'm only an amateur who has the ear of a couple of young financial gurus to help me see sense... but, mostly after i ask them questions, i come to realise that the untrained, naked eye is perhaps the best way to look at the current mess...

the trained eye still has been 'hook, line and sinker'ed' into a system, and so, still susceptible to being talked around by nonsense...

in any case, to follow on from your post, i missed my boat in jan 2009 when the aussie dollar was 2:1 with the euro... i missed my chance to make hay in the space of 12 months... for what...? international currency exchange, and so... for nothing... but, pulling the trigger has always been a weak point...

still, like you say, cash is king today... and by simply not having debt places most in a firm position going forward... and i am happy to say i was unwilling to tie myself into a system that, as i have learned, was rigged against you, me and all of us... but, as rapper and businessman 50 cent said, 'recessions have proven to be the climbing wall for the middle class...' true maybe... but only true if you have the cold hard cash... as the fortunate middle class climb, they tread on the faces of the middle class who will remain with negative equity and locked into a system that collapsed in what will seem an age ago...

i came back in here to post an article that you'll find interesting... good to see the international banks global swindle getting a caning in the mainstream media...

Darius Guppy: our world balances on a sea of debtWhat is needed is a root and branch re-evaluation of that most curious of cultural inventions – money, argues Darius Guppy.

21 Feb 2010

In the year 1994 there resided in the cell next to mine a certain ‘Tommy.’
Now Tommy had been imprisoned for counterfeiting Dutch Guilders to such a high standard that he had fooled the banks themselves.

As was customary among prisoners who became friends, Tommy allowed me to read his legal papers and I quickly became fascinated by the Judge’s sentencing speech, the gist of which was that Tommy’s activities had been parasitical. By creating money out of little more than thin air he had reduced the purchasing power of more deserving members of society. What would happen if everyone behaved like him?

Immediately I thought of arguments used, in a different context, by Thatcherites and neo-liberals in general regarding inflation. Inflation, just like counterfeiting, dilutes the value of the community’s hard-earned wealth and as such constitutes a terrible social evil. Creating too much money - ‘real’, just as much as ‘fake’ - can wreck an economy. Such indeed was the reasoning of the Nazis when, during World War Two they came up with a plan – that came close to implementation - to ruin Britain’s economy by flooding the country with near perfect counterfeit bills.

A lot of nonsense has been written and said about the world’s current economic woes - how the crash is the fault solely of the banks and how, by implication, Governments are blameless and in particular how it could all have been avoided and will indeed be made right by greater financial regulation, and so on. All of which constitutes a classic example of what the philosopher Alasdair MacIntyre terms “the fallacy of managerial expertise”: an attempt by ‘experts’ to blind us with science in order to justify their own over-paid existences and mask their confusion. After all, if they had been so skilled, then why is it that not one of them - either politician or finance minister or financial journalist or just plain financier - was able to predict the current debacle?

These ‘experts’ will tell you that the present difficulties are simply the result of abuses and excesses in a system that is basically sound. In short, all that is required is for some faults to be corrected. But do not believe them. For the reality is that the problem is systemic and a little tinkering here or there will achieve nothing in the long term.

In fact, what is needed is a root and branch re-evaluation of that most curious of cultural inventions – money – how it is created, how it circulates within an economy and how it can best be used to serve the interests of the community itself.

To begin then, the experts owe it to the people to explain to them in the simplest terms how it is that money actually works.

Such is the task I propose to undertake in this essay and for this it seems to me that the layman must grasp two fundamental concepts above all others:

First, that the confusion should not be made between ‘legal tender’ and ‘money’ as a whole. In particular, were one to ask the man on the street - indeed were one to ask most politicians and even most bankers - who it is that actually creates the money which rules our lives they would no doubt reply “the State.”

And in this they would be wrong.

For while it is true that Governments create legal tender – which is to say the physical notes and coins that circulate in an economy – that legal tender represents, at its absolute highest, only 3 per cent of the total money in circulation in the global economy. It is in fact the commercial banks, largely unaccountable and privately owned, that create the world’s money in the manner I will describe below.

Indeed, even were Tommy responsible for printing every single note in circulation throughout the world his power to dilute the rest of our wealth would amount to only a tiny fraction of that of the real manufacturers of money - which leads us to the second most fundamental point of all - that the activities of my friend Tommy and the activities of the bankers are in essence identical: the creation of money – which is to say claims on the rest of us - out of nothing.

Without knowing it, therefore, Tommy’s judge punished him for usurping not so much the role of the State as the role of the banks.

More to the point, the very same mistake – namely the mis-identification of where money truly originates - has been made by virtually all our politicians, economists and financial commentators.

Consider the absurd contradiction at the heart of neo-liberal, Monetarist, Thatcherite economics which has constituted the Western orthodoxy for the past few decades: to emphasise on the one hand that the money supply should be brought under control whilst simultaneously allowing banking – where the money is actually manufactured – to run riot!
To grasp how the global fraud works we will need to step back in time and imagine ourselves next to the original goldsmith-banker.

Now our goldsmith-banker has a vault in his business premises and in this vault ten of his customers each deposits a bar of gold weighing 1 kilogram - for safekeeping and in the hope of a return for lending our banker their gold and thereby depriving themselves of the benefits they would enjoy had they elected to spend their wealth now.

Classical economic theory would have it that our banker fulfils a useful social function – namely bringing together those who have a surplus of money with those who have a deficit but who, despite this, nevertheless have the energy, work ethic and vision to make a profit for all concerned out of this union. In short, our banker lends the ten gold bars in his vault to certain of his other customers who in turn use this wealth to embark on profitable ventures, ventures that generate a surplus by the end of year one. Happily, the vault now contains eleven gold bars out of which our banker can pay his depositors and himself a reasonable return.
This process, which for obvious reasons depends first and foremost upon economic ‘growth’, continues apace and is refined, at least to begin with, in ways that appear eminently logical. In particular, our banker soon questions the wisdom of keeping all the gold bars in his vault where security is a concern. Likewise, the procedure of having to descend to the vault and withdraw the gold bars and transport them to different parts of the country and carve them up into smaller units becomes too burdensome. The picture is further complicated when one appreciates that by now thousands of banks have sprung up all over the place and have begun to lend to each other.

At this point therefore he comes up with an idea – to create a token, a token in itself valueless, such as a piece of paper, that will represent a given quantity of the gold either in his own vault or held to his account at some giant, more secure vault – a precursor to Fort Knox if you like. Such a token can then be circulated and exchanged within the economy in a manner that is relatively hassle-free. Historians credit one of the first examples of such an instrument – the cheque – to the Knights Templar. In this way, a pilgrim could encash a cheque drawn on a European preceptory at a Templar branch in the Holy Land.

So far so good. And good it remains just so long as for the face value of each of the pieces of paper in circulation there exists a corresponding amount of gold sitting in a vault somewhere that can be accessed in the real world.

At this juncture therefore the virtual and real economies are able to advance pretty much in lock-step.

However, it is at this precise point that something truly wondrous and truly diabolical occurs.
For our banker and his banker friends make an imaginative leap.

Experience has taught them that the bearers of the pieces of paper which they have created rarely attempt to claim the gold their paper – or their ‘money’ - represents en masse.

Our banker reasons thus: “just so long as the pieces of paper that my friends and I have put into circulation are not encashed simultaneously then it is largely academic how many such pieces we create. If, for example, we have 1 kilogram of gold in our vaults and we issue ten pieces of paper to ten different clients each with a face value equivalent to that 1 kilogram, then so long as two people do not come to the bank on the same day demanding their gold we will be able to keep out of trouble.

Clearly, the most crucial part of our scheme is to create a culture of confidence. The bearers of our pieces of paper must feel secure about our ability to convert their paper back into their gold, or real wealth. Best therefore to give names to our institutions such as ‘prudential’, ‘guarantee’, ‘trust’, ‘security’, ‘fidelity’ and so on.”

The reader will appreciate the beauty of the scheme: for now, instead of earning interest on a single piece of paper our banker can earn interest on ten such pieces of paper! Moreover, whilst charging interest on these ten pieces of paper, he has only to pay out a reduced rate of interest on the single gold bar that has been deposited with him!

And, incredibly, this is indeed exactly what happens.

Currently the average fractional reserve requirements for banks amount to under 10% which means that for every dollar (or equivalent) the banks have on deposit they can lend out at least ten such dollars – virtual dollars which they summon from nowhere – and on which they charge interest.

Just as incredibly, this fact – the key to understanding how the international financial system actually operates and why the world is in such a mess – is discussed virtually nowhere in mainstream circles: not in The Financial Times, not in The Economist, not in the broadsheets, not in Parliament, not in the City and not in the economics departments of most Universities.
Either the process is unknown in these circles therefore - a sign of mediocrity - or it is indeed understood but kept deliberately quiet - a sign of wickedness.

Let me repeat: supposedly ‘sovereign’ Governments – representative of their people, at least in theory – do not control the single most important mechanism when it comes to their economies: namely the production and distribution of money. That role has been diverted in large measure to the banks which manufacture money out of nothing and charge interest on that conjured-up money. In fact, beyond a pathetic interest rate cut here and a token cut in VAT rates there our politicians have zero real power when it comes to directing their country’s economy.
Only in a world of lies and illusions, a world in which actors become our leaders and our heroes, could such sorcery be possible.

The picture has of course become a great deal more complicated. Soon pieces of paper are no longer required and instead entries on a bank’s ledger will suffice. Eventually, a further layer of virtuality is added when computers emerge and with them credits in cyberspace. Likewise all sorts of financial instruments and ‘products’ are devised by the experts – Collateralised Mortgage Obligations, Put and Call Options, Floating Rate Notes, Preference Shares, Convertible Bonds, Semi-Convertible Bonds and endless other ‘derivatives’ – but in essence these additions constitute mere variations of the same basic Three Card Trick.
Moreover, the illusion becomes self-reinforcing. Those involved in the process, sitting behind their computer screens, shuttled from one air-conditioned capsule to another, stressed by the pressure and the volatility of the hallucinogenic nightmare they inhabit, yet sheltered from the tactile realities of the outside world, no longer control the beast they have created. How far removed from the days when wheat landed on the docks and merchants met in coffee houses and bazaars to haggle over things they could feel.

Now it may be argued that while it is true that money is manufactured in the manner I have just described – in other words by creating loans to the banks’ clients – surely just as much money is destroyed every time a loan is repaid? This is true to an extent. However, the point to be grasped is that while money is indeed created and destroyed in vast amounts every second of the day, the interest on that money remains un-destroyed and accumulates within the system – and at a compounded rate, moreover.

The reader will appreciate the problem and how it is that the process described is far more inflationary and far more parasitical than the activities of all the Tommys in the world put together. For while that money, which by now has mutated into a vast mutual-indebtedness monster, grows exponentially, the wealth it is supposed to represent cannot grow at the same pace for very long. In short, while there is no limit to the number of zeros we can create on a computer – zeros which represent claims on us and on what we own - there is a very real limit to the amount of oil in the ground, the amount of wheat in the fields and the amount of livestock in our farms.

Granted, the discovery of a continent here, a technological invention there and an increase in efficiency somewhere else can accommodate the growth in the real economy that is required to keep pace with the growth in the virtual one, but only to a point – which is of course precisely why the economic explosion begins with the discovery and opening up of just such continents from the early 16th Century on and is reinforced with the advent of the industrial revolution. Capitalism, banking and growth become inseparable, but in a world bounded by the real, logic dictates that the virtual economy must eventually peel away from the real one and sooner or later the day of reckoning arrives - when the gulf that separates these two economies is too large to be sustained - for no power on earth can match the power of compound interest in the ether.

Consider the well-known tale of the Chinese Emperor and his opponent at a game of chess to whom the Emperor asks what reward would satisfy him in the event his victory. The opponent, his subject, replies that a single grain of wheat, doubled for each of the 64 squares on the chess board, would suffice. The Emperor, imagining that he has a good deal, plays on and loses, only to learn that he now owes his adversary the equivalent of 2000 times the current annual worldwide production of wheat.

Such are the miracles of compound growth. Such too is the reason why financiers have been able to award themselves increasingly astronomical sums. For their virtual printing presses are calibrated to an exponential production while no such calibration applies to Mother Earth.
It was the 1921 winner of a Nobel Prize for Chemistry and not for Economics, Frederick Soddy, who was among the first to articulate the mechanism by which money is created by the banks and how it mutates into debt in the ways I have described and his arguments have been developed over the years by thinkers such as Herman Daly and Richard Douthwaite.

In fact, the reasoning can be extended to cover not only bankers but the financial sector as a whole. A company makes a certain profit; a multiple of many times can be applied to that figure to arrive at a ‘value’ for that company (the price-earnings ratio) – based, as ever, on the assumption of future growth. That value can then be leveraged yet further for it to raise debt against its share price and so on and so forth. Taken to ever more ethereal extremes, such super-ovulation can mean that a single company with nothing more than an idea to be applied to the internet and a turnover less than your average Fish ‘n Chips can create yet more tokens – share certificates - worth several times the entire annual production of diamonds for the continent of Africa, a process known, retrospectively, as the dotcom bubble.

There are a couple of features which should be immediately apparent.

First, such a system constitutes in effect a redistribution mechanism from the poor to the rich which is of course precisely why the banks and Western Governments are so desperate to ensure its survival and the hegemony which results from it.

Money breeds more money and develops a quality akin to matter – the larger the agglomerations, the greater their gravitational pull or, as the Bible puts it: “unto he that hath shall be rendered and from he that hath not shall be taken away, even that which he hath.”

Indeed, contrary to what they may tell you, the banks never really want their loans to be repaid at all. Just so long as the interest is funded it is in fact to their benefit for the capital to remain outstanding on their books as ‘assets’ and for the debts to be rolled over. Every time the IMF or World Bank extends a line of credit to some impoverished nation, are they being ‘charitable’ therefore or are they simply perpetuating the enslavement?

Second, such a system relies entirely, as do all Ponzi schemes, on the assumption of continued growth, hence its inherent instability. Once that growth is threatened the edifice collapses. Householders in Britain today will appreciate such a phenomenon – the result of ‘leverage’ - only too well: put up 10 per cent for a property and borrow the rest from the bank. That property’s value need rise by only 10 per cent and you have doubled your equity. But on the flip side that value need fall by only 10 percent and you are wiped out.

Which in turn explains precisely why a contraction of a mere 2 or 3 percent in the global economy leads not to a correspondingly minute fall on international stock markets, but to financial Armageddon.

Likewise with the banks – lend ten times more money than you possess and when the economy grows – or at least pretends to grow – Porsches galore, but when the lack of growth is exposed it requires only 11% of the loans on your books (in value terms) to be bad and you are bust. The truth is not that these institutions have suddenly become insolvent therefore, but that they were never really solvent in the first place since the assumptions on which they were founded could not apply in the real world. Simple false-accounting has meant that by rolling over their debts they have been able to keep them on their books as ‘assets’ rather than losses and forestall the evil hour.

There is an overarching name for the process I have outlined – ‘usury’ - and our predecessors from the Ancient and Medieval worlds appear to have appreciated much better than us its ultimate destination: ruin.

In sum, I have argued that both the analyses of the current economic crisis and the sticky-plaster remedies advanced by politicians, financial journalists and the financial industry itself to counter that crisis are woefully inadequate because they fail to grasp what is in fact a simple and devastatingly effective swindle, a swindle largely invisible because it has become so deeply embedded in our culture.

The consequences of that swindle, in particular the desperate need for economic growth, the consumption, wastage, and the environmental and cultural despoliation which it engenders, together with some possible antidotes worthy of consideration, must be dealt with separately.

In the interim, suffice to say that some original and radical thinking, the type of thinking one encounters nowhere in any of the political parties, will be required.

Readers of the Telegraph in particular should take note - a degree in PPE or History and a few A-Levels in the Bleedin’ Obvious will not make the problems go away.

German memo shows secret slide towards a super-state
An intrusive European body with the power to take over the economies of struggling nations should be set up to tackle the eurozone crisis, according to a leaked German government document.

Germany's secret plans to derail a British referendum on the EU
Germany has drawn up secret plans to prevent a British referendum on the overhaul of the European Union amid concerns it could derail the eurozone rescue package, leaked documents obtained by The Daily Telegraph disclose.

You can bet Djokovic's mom just screamed "Another king is dead" right about now - in the remotest corner - of her bathroom - followed by "The other one is buried." (from tennisplanet.me, following Madrid 2011 Djokovic d. Nadal 7-5 6-4)

once the greeks had a nice little chew on a loan the script wrote itself... enslaved...

for a short period a couple of weeks ago i thought greece had found the last 'out' they could have used... a referendum... well, that didn't go down too well in brussels... certainly can't trust the people to choose to default, effectively leaving the eurozone and start the road to recovery by taking control of the essence, the true meaning of a sovereign nation - its currency...

i find it mind-boggling that people would even consider the idea of britain being outfoxed politically by germany. as if germany could ever come up with a plan that truly derails anything the uk wants. as if german politicians had the stamina to see anything anti-british through. as if germany could jam anything down britains throat.

in politics, germany vs. britain is like david vs. goliath. like an amateur trying to go pro and falling back to amateur status time and time again. we're WAAAAAY to stupid, naive and gutless. don't worry, my dear brits. i don't envy britain for a lot but politically its class is miles ahead of us, three - to four-dimensional compared to our one-dimensional approach.